Yahoo CEO swap – What Next for the Internet Behemoth?

The news of yesterday that the Yahoo board of directors decided to remove Carol Bartz from the corner office came at a little bit of a surprise to the world. For a company of this size, after all, two years isn’t a lot to turn over a completely new leaf. In her time as the company’s CEO Ms. Bartz made changes to the management team, cut jobs to save on costs and tried to shift Yahoo’s focus from traditional search towards more personalised content, but evidently the change wasn’t radical enough and probably didn’t come quickly enough (or rather didn’t provide sufficient results to keep her in the top seat). In any case, the market seems to be in agreement with the board’s decision, given that the stock closed more than 5% up yesterday.

Putting aside whether Ms. Bartz has done a good job as the company’s CEO, I think it would be quite interesting to have a look at the competitive position that Yahoo is in today.

Traditionally, we would expect it to compete with Google – the two companies have similar historical roots as the tandem of leading search engines in the cyberspace. Their strategic positioning has, however, evolved considerably over the years – and their strategic choices have turned them into two massively different entities. If one compared the two businesses ten years ago and today, my bet is that in terms of their primary activities they have definitely drifted apart.

The one thing that hasn’t changed over the years, however, is their primary source of revenue – online advertising. Regardless of how far they drift apart in terms of their front-end activities, they still very much compete for the same customers – and today, Google is undoubtedly winning that battle (see chart below for US market – thanks eMarketer!).

http://www.emarketer.com

However, the same reason, i.e. revenue source, also exposes Yahoo to other types of competitors – among them Facebook. The new kid on the block with its platform business model disrupted the market equilibrium quite considerably, tapping into the same revenue source that both Yahoo and Google are very much reliant upon. Google’s “me-too” launch of a social networking platform shows how much of a threat Facebook is to the two Internet behemoths (Yahoo’s absence in the social networking model is, reportedly, one of the reasons for Ms. Bartz’s departure, btw).

What next for Yahoo, then? My vote would probably go to greater focus and discrimination. The company still seems to be spread too thinly across many types of activities, grabbing as much of the pie as it can, but being fairly  indiscriminate about which markets it really wants to play in. You could say, I guess, that Yahoo is suffering from identity crisis, trying to be all things to all people, rather than just being the right thing to some of them.

Google solved this problem early on by stating firmly that they’re in the business of becoming the information repository for the world, and this underlying logic, albeit wide, allows it to play in so many areas with success. Yahoo, however, doesn’t seem to have that underlying idea of what it wants to be – and my feeling (strictly a feeling, nothing more) is that there isn’t quite enough space in the marketplace for two of these “hands-in-all-pies” players.

One company to look to in the online advertising business that came in with a clear focus and capitalised on it is LinkedIn. Rather than going after all possible advertisers, they made the conscious strategic choice of sticking to just the B2B part of the market. As any strategic choice, this one too was both positive and negative – by deciding to go after B2B LinkedIn also inherently decided not to go after the huge B2C space – a revenue stream that will likely largely remain untapped into for them. But it also meant that they could better serve their B2B customers – which clearly has paid off.

Whatever Yahoo’s strategic choices under the new CEO Tim Morse, it will be interesting to see what happens with the company in the next few years. The incoming CEO will clearly have a tough nut to crack – whether he decides to smash it with a hammer or look for an elegant nutcracker remains to be seen – either way, good luck.